Re-Mortgaging Made Easy
Re-mortgaging has become more popular in recent years as people either try to get a better deal or look to release some equity from their house as a way of borrowing more cash.
Of course, whether re-mortgaging really saves money depends… Many borrowers are paying more than they need to for their mortgages, usually because they are on the lender’s standard variable rate (SVR). There will definitely be better rates available.
Unfortunately when you re-mortgage you will be hit by fees. Mortgage arrangement fees have rocketed and so have mortgage redemption fees. This has happened because mortgage companies use these fees to subsidise their attractive headline interest rates.
This means that it’s not simply a case of getting a lower rate, but also factoring in the impact of the fees.
Of course there are financial professionals who can help you with advice, but they may only be able to recommend certain products.
Independent mortgage brokers are free to give you advice from the whole of the mortgage market, but all advisers will have their own fees too.
To approach this yourself, you should first check the terms and conditions of your existing mortgage. How long are you tied in to your mortgage deal? Are there any redemption (repayment) penalties? Is it worth re-mortgaging to a lower rate if you have to pay those fees?
You may feel a certain loyalty to your lender if you’ve been with them for a long time, but ask yourself if they are rewarding you for that loyalty. So – shop around.
You can actually borrow more through re-mortgaging too. This is what releasing equity is all about. Borrow more, use the cash wisely, but be mindful of your increased monthly payments. Also be aware that a mortgage is a secured loan – and the security is your home, so you do run the risk of losing your home if you cannot make the payments.
There are several mortgage options available: fixed, capped, discounted, flexible.
Fixed mortgages give a certainty to repayments for a fixed period (usually two to five years), but may have slightly higher rates.
Discounted mortgage give a reduction off the SVR for a set period. If rates go down, your mortgage goes down, but of course, if rates go up, so does your mortgage.
A capped mortgage sets a limit to the rate you will pay. So, if the rates rise, your payments cannot go above the agreed level. But if the rates fall below the cap, your payments will also fall.
A flexible mortgage gives you the chance to overpay when you are able, and underpay in times of difficulty. This is useful for people with uncertain incomes, or if you want to pay your mortgage off early.
It is best to avoid deals with long redemption penalty periods; look at the small print! When you apply for a mortgage, you will be given a “key facts” document, which should show all charges and fees in plain English.
To proceed you will need a redemption statement from your existing lender, telling you how much you still owe. Your application form will also need details about your income, bank statements, payslips, P60, mortgage statements, proof of identity. You will need a valuation (up to £300). There will be an arrangement fee, as mentioned – anything up to £1000.
You must weigh up the savings from your new mortgage against these charges.
Re-mortgaging is fairly straightforward these days, and can take as little as a month to do. You will get a mortgage offer; your new lender should liaise with you existing lender; you receive a completion statement; and you start paying the new repayments to your new mortgage lender.
3st May 2007
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